The Quick Read: Both loans pay off your current mortgage and hand you a new one, and the new one gets its own fresh payoff clock. FHA tends to suit borrowers with thinner credit or higher debt ratios who can live with mortgage insurance. Conventional tends to suit stronger files, where mortgage insurance often drops out at this leverage. Either way, a new 30-year note can push your payoff date back, so you should pick the term on purpose.
Key Takeaways
- Both options cap out near the same leverage on a primary home. FHA cash-out is limited to a maximum loan-to-value (the loan as a percentage of the home’s appraised value) set by FHA guidelines. A conventional cash-out on a one-unit primary residence is similar, though the exact limit is set by the lender’s guidelines.
- FHA is the more forgiving option on credit and debt ratios. Conventional is usually the cheaper option over time for borrowers who clear its bar, since it usually carries no monthly mortgage insurance at 80% LTV or below.
- FHA mortgage insurance has two parts: an upfront premium and an annual premium. How long the annual part lasts depends on the loan term and the loan-to-value at origination, so confirm the schedule that applies to your file.
- The new loan restarts your amortization (the schedule that splits each payment between interest and principal). A shorter term, or extra payments, keeps your original payoff date in play.
- Everything here is subject to lender guidelines and full file review. None of it is a commitment to lend.
Side-by-Side
Here is the quick comparison. The next sections explain what sits behind each row.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage | 80% LTV on adjusted value | Similar on a one-unit primary home |
| Credit floor | 580 decision score at the programs Lendmire places | Usually higher; set by the lender |
| Debt ratios | 31/43 base; up to 40/50 with documented factors | Set by the lender and the automated finding |
| Mortgage insurance | 1.75% upfront plus annual premium | Usually none at 80% LTV or below |
| Occupancy | Owner-occupied primary residence | Primary, plus second homes at lower leverage |
| Ownership clock | 12 months owned and occupied | Clock on the loan being paid off |
The last row is the one most borrowers overlook. We come back to it below.
What Each Loan Really Is
An FHA cash-out refinance is a mortgage insured by the Federal Housing Administration. You don’t need an FHA loan today to get one. The home must be your primary residence, and you must have owned and occupied it for 12 months before the case number is assigned. A home owned free and clear counts too. Paying off a mortgage that doesn’t exist still makes the loan a cash-out.
A conventional cash-out refinance isn’t government-insured. It follows the guidelines of the big secondary-market buyers, with each lender layering on its own rules. Same idea, different rulebook.
Both pay off your first mortgage at closing. Whatever is left after that lien and the costs goes to you. Neither one is a second mortgage on top of what you have.
When FHA Is the Better Fit
FHA wins when your file is good but not pristine. Three situations come up again and again.
Credit that sits in the middle. The wholesale programs Lendmire places FHA files with start at a 580 decision score. Conventional guidelines generally ask for more, and lenders often add their own cushion. If your score is in the 580s or 600s, FHA may be the only cash-out door that opens.
Debt ratios that run high. The base FHA pair is 31/43. That means housing costs at 31% of income and total debts at 43%. Documented compensating factors, such as reserves or a strong payment history, can stretch the pair to 40/50 at the top tier. An automated underwriting finding governs most files. A borrower carrying car loans and student debt often gets a better look here than under conventional rules.
A recent credit hiccup. HUD sets waiting periods after events like a chapter 7 discharge (two years) or a foreclosure (three years). Those are HUD’s rules, not a promise from any lender. They are often shorter than conventional waiting periods, though lenders can add stricter overlays.
Now the trade-off. FHA charges mortgage insurance in two pieces. The upfront premium is 1.75% of the base loan, and most borrowers finance it into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a 30-year loan with a higher LTV, the annual premium lasts for the full term. With a lower LTV, it ends after eleven years.
FHA cash-out is capped at 80%, so you land in the eleven-year tier. HUD’s Handbook 4000.1 is the consolidated policy source for FHA single-family lending. One catch matters here: the eleven-year clock restarts with the new loan. Refinance an older FHA loan, and you start the insurance count over.
County loan limits apply to FHA loans, and they change every year. Your lender can tell you the limit for your county.
When Conventional Is the Better Fit
Conventional wins when your file is strong. Think solid credit, moderate debt and plenty of equity.
Here is why. On a one-unit primary home, a conventional cash-out with enough equity behind it usually carries no monthly mortgage insurance. The leverage ceiling is set by occupancy and unit count in Fannie Mae’s eligibility matrix. Read it directly before relying on any number you see elsewhere, because lender summaries drift out of date.
Compare that with FHA’s insurance. A conventional borrower avoids the upfront premium and the eleven-year annual charge. For a borrower who qualifies either way, that gap is often the whole story.
Conventional also offers more room on two fronts:
- Occupancy. FHA cash-out is for your primary residence only. Conventional guidelines also cover second homes, with lower leverage caps.
- Delayed financing. Conventional guidelines include an exception for buyers who paid cash recently. It limits the new loan to the documented initial investment plus financed costs, and cash-out pricing still applies. The FHA ownership clock has no equivalent shortcut in the rules reviewed here.
If mortgage insurance does apply on a conventional loan, the rules favor you. The CFPB explains that you can ask the servicer to cancel private mortgage insurance (PMI) when the balance is scheduled to reach 80% of the home’s original value. The servicer must terminate it automatically at 78%. FHA insurance follows its own duration table instead. It has no comparable cancellation right.
Does the 30-Year Clock Really Restart?
Yes, on either loan, because a refinance replaces the old mortgage with a new one. The CFPB’s refinance guide puts it plainly: the new loan has a new term, which may be longer. That can mean a lower monthly payment but a higher total cost.
Picture a homeowner ten years into a 30-year loan with twenty years left. A new 30-year cash-out means thirty more years of payments, not twenty. Ten extra years of interest is the price of the longer runway. Early in a new schedule, most of each payment goes to interest, so principal drops slowly. Not ideal if you plan to stay.
The mortgage-insurance clock restarts too. On FHA, the eleven years begin again from the new loan. Conventional PMI, if it applies, is measured from the home’s original value, and on a refinance that value is set by the new loan’s appraisal, so the cancellation rules above run from the new loan as well.
You have more choices than “new 30-year or nothing.” Here are the usual ways to keep your original payoff date within reach:
1. Pick a shorter term. Many lenders offer terms such as 15 or 20 years on both loan types. The payment rises, and the payoff date moves up. A shorter term can also change the annual premium on FHA.
2. Take the 30-year and pay extra. Add principal each month and you can aim at your old payoff date. The 30-year payment stays as your safety net if money gets tight.
3. Borrow less. Cash-out has a ceiling, not a minimum. Taking only what you need leaves a smaller balance to carry.
The extra-payment route is flexible, but it only works if you actually make the payments. Most people mean to. Fewer do.
Where the Cash Goes Matters
Advisers often discourage using cash-out equity to pay off unsecured or short-term debt. The reason is the term. A credit card balance you’d clear in a few years gets stretched over decades, and you pay interest on it the whole time. The payment feels lighter. The total cost is not.
Cash used for something that adds lasting value, like a repair that protects the home, sits more comfortably on a 30-year note. This is a judgment call, and reasonable borrowers land in different places. If you plan to use cash-out to consolidate debt, ask what happens if you run the cards up again. Then you’d owe both.
Closing costs deserve the same scrutiny. If you roll them into the loan, the balance grows. The CFPB’s warning on refinancing offers that sound too good to be true was aimed at VA borrowers, but the principle is general. Financed costs, skipped payments and rolled-in escrow all raise principal. “No out-of-pocket” is a description of how the costs are paid, not proof that they went away.
What Decides Whether You Qualify
Six items drive most outcomes on either loan.
- Appraised value. FHA applies its cap to adjusted value, not to a raw estimate. A low appraisal shrinks the loan and the cash with it.
- LTV. The ceiling is 80% on FHA. Your existing balance plus costs has to fit under it before any cash is left over.
- Seasoning. This is the waiting period on ownership or on the loan being paid off. FHA looks at 12 months owned and occupied. Conventional looks at its own clocks.
- Payment history. FHA reviews the mortgage you’re paying off. HUD’s payment history rules apply, and the current Handbook governs the details.
- Credit. FHA starts at a 580 decision score in the programs Lendmire places. Conventional usually asks for more.
- Debt-to-income ratio (DTI). This is your monthly debt as a percentage of gross income. FHA has more room here.
A lender reviews income, debts, credit, assets and the property together. No single item decides the file.
Mistakes That Cost Borrowers
Using an old LTV. Older articles say FHA cash-out reaches 85%. That limit was cut to 80% years ago, and HUD’s current guidance reflects it.
Assuming “lower payment” means “saved money.” A longer term lowers the payment and raises total interest. Compare both numbers, not just the first.
Assuming FHA insurance lasts forever. On a 30-year loan at 80% LTV, the annual premium ends after eleven years. It restarts if you refinance into another FHA loan. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Treating PMI and FHA insurance as the same thing. PMI has legal cancellation rights. FHA insurance follows HUD’s table.
Skipping the Loan Estimate comparison. The CFPB advises comparing official Loan Estimates from more than one lender before deciding. Two files can look similar on a quote and differ widely on terms.
Key Terms Defined
Cash-out refinance: a new mortgage larger than your current payoff, with the difference paid to you.
LTV (loan-to-value): your loan balance divided by the home’s appraised value, shown as a percentage.
Amortization: the schedule that splits each payment between interest and principal over the loan’s term.
Seasoning: the waiting period a lender requires on ownership or on an existing loan before a cash-out.
MIP (mortgage insurance premium): FHA’s insurance, with an upfront premium and an annual premium.
PMI (private mortgage insurance): insurance on conventional loans, usually tied to leverage above 80%.
The Balanced Verdict
Neither loan is the better product in the abstract. They fit different borrowers.
FHA is the better bet when credit or debt ratios hold your file back. Both cap near the same equity on a one-unit primary home. Both restart the clock.
The genuine toss-up is the borrower who qualifies for both. But a borrower with a long runway and a firm plan to refinance later might weigh the lower credit bar differently. Reasonable people could argue either way.
The decision that matters more than the loan type is the term. Choose a payoff date first, then pick the loan that gets you there.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Do I need an FHA loan now to get an FHA cash-out refinance?
No. FHA cash-out is open to homeowners with any kind of existing mortgage, or none at all. The requirements are that the home is your primary residence and you’ve owned and lived in it for 12 months before the case number is assigned. A paid-off home qualifies, and it counts as cash-out.
Is a new 30-year term required?
No. The new loan comes with a fresh amortization schedule, but you choose the length. Many lenders offer shorter terms on both loan types. If you take 30 years, extra principal payments can bring the payoff date back toward your original one.
How long does FHA mortgage insurance last on a cash-out?
On a 30-year loan at or below 90% LTV, the annual premium ends after eleven years. FHA cash-out is capped at 80%, so that’s the tier you land in. The upfront premium is usually financed into the balance. The clock restarts if you refinance into a new FHA loan later.
Can I refinance from FHA into conventional, or the other way around?
Yes, in both directions, and neither requires an existing loan of the same type. The conventional borrower usually needs stronger credit and ratios. The FHA borrower takes on the insurance premiums. Which move makes sense depends on your equity, your score and how long you plan to keep the home.
Should I use a cash-out to pay off credit cards?
It depends on your plan. Moving card debt into a 30-year mortgage lowers the payment but stretches the payoff across decades. Advisers often discourage it for short-term debt. It can make sense if you’ll stop adding to the balances and you plan to prepay.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Handbook 4000.1 information page
2. Fannie Mae Eligibility Matrix
3. CFPB: When can I remove PMI
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get an FHA Cash-Out When Conventional Costs Too Much · How the Occupancy Clock Works on an FHA Cash-Out Refinance · FHA Cash-Out Refinance vs Conventional Cash-Out While Between Jobs
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.